Intergenerational Transmission of Inflation Aversion: Theory and Evidence
AbstractThis paper studies the transmission of preferences in an overlapping-generations model with heterogeneous mature agents characterized by different degrees of inflation aversion. We show how the dynamics of a society's degree of inflation aversion and the implied degree of central bank independence depend on the direction and speed of changes in the structure of the population's preferences, themselves a function of parent socialization efforts in response to observed inflation. We then construct a survey-based measure of inflation aversion and provide empirical support for our analytical and simulation results. Available cross-section evidence confirms that a nation's demographic structure, in particular variation in the share of retirees as a proxy for the more inflation-averse type, is a key determinant of inflation aversion, together with experience with past inflation and the resulting collective memory embodied in monetary institutions.
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Bibliographic InfoPaper provided by IRISS at CEPS/INSTEAD in its series IRISS Working Paper Series with number 2009-11.
Length: 36 pages
Date of creation: Sep 2009
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intergenerational transmi ; evolving preferences ; inflation aversion ; central bank independence ; collective memory;
Find related papers by JEL classification:
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- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-CBA-2009-09-26 (Central Banking)
- NEP-DGE-2009-09-26 (Dynamic General Equilibrium)
- NEP-MON-2009-09-26 (Monetary Economics)
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- Ehrmann, Michael & Tzamourani, Panagiota, 2009.
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- Hayat, Muhammad Azmat & Farvaque, Etienne, 2012. "Public attitudes towards central bank independence: Lessons from the foundation of the ECB," European Journal of Political Economy, Elsevier, vol. 28(4), pages 512-523.
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